UPDATE 31 May 2006 3:30 pm ET

New York (NY) - A report late this morning cites an RBC Capital Market analyst’s report as saying the conditions may be ripe for a merger between CPU manufacturer AMD and graphics card manufacturer ATI.

The story quotes RBC analyst Apjit Walia as saying, "We believe ATI is a rare-buy in the semiconductor space right now given the near-term tie-up dynamics."

Last February, the same analyst co-authored a report that downgraded RBC’s price targets for Intel shares from $29 per share to $21, in the wake of potential bad earnings news that did indeed eventually come to fruition. "This year," Walis is cited by Marketwatch as saying, "Intel is being affected by an ever-aggressive AMD, a roadmap that continues to have glitches and, most importantly, a slowdown in the PC food chain that has started to show signs of exhaustion after 14 months of robust growth."

RBC apparently does not keep tabs on AMD, though early last month, the firm raised its ratings for ATI stock to "outperform," and its price targets to $23 per share from $19, a few days after ATI released positive earnings and growth news. In the meantime, a of a potential revenue shortfall in Q2 by AMD, in the wake of aggressive pricing moves by Intel.

Spokespersons for both AMD and ATI were contacted by TG Daily, and both companies declined comment in separate messages, stating they do not comment on rumor or speculation. Stocks for both companies traded sharply higher in the wake of the news, before leveling off in ATI’s case for a nice gain, but dropping back down to near-unchanged levels for AMD.